Republicans have a plan to reform business taxes. They want flatter business taxes that lower the tax rate on the highest taxpayers; that don’t reduce the revenue generated because it spreads the tax net to reach formerly untaxed or under-taxed businesses, and which therefore don’t increase overall taxes (Grover Norquist wouldn’t like that). And this reform, it is claimed. would spur a great deal of positive economic activity.
A good idea? Maybe. After all, President Obama supports the same approach. So if this approach to reform of business taxes has this kind of support, why not apply exactly the same approach to the Payroll Tax that supports Social Security?
Instead of applying a 6.2 percent Payroll Tax rate only to the income of middle class working taxpayers and their employers, spread the net and apply it to all earners at all income levels and to unearned income as well as earned income. Then, not use the extra income generated to reduce deficits, or boost funding in a Social Security Trust when the Social Security system is already well funded for decades, but instead use the extra revenue to reduce all payroll taxes to 4 or 4.5 percent, both for individuals and their company employers.
This is exactly what Republicans and President Obama want to do with business taxes. The rates of all payers here are flat, not progressive — everyone pays the same, a long time conservative preference. The total amount of taxes collected is not increased, merely shifted from individuals and businesses currently over-taxed to those currently untaxed. This is therefore not a tax hike, just a tax shift via net spreading — just like the Republican’s business tax proposal.
As to how this Republican-style Payroll tax reform would benefit the overall economy, the results would be very positive indeed. The extra income to middle class workers would almost all get spent, pouring billions into sales of more products and services. Extra income for middle class workers would also keep more of them from becoming poor enough to need government entitlements, reducing government costs. Small-scale employers, who pay their own 6.2 share of the Payroll Tax, would also get a tremendous bottom line boost that would allow them to increase their hiring.
The argument that this Payroll Tax reform would reduce investment from those now excluded from this tax is foolish. The reason is that investment is best generated by sales increases, not tax breaks. Makers need takers to buy their goods and services. With the middle class richer, investment would pour into meeting the middle class’ greater capacity to buy what the makers make.
This Republican-style reform of the Payroll Tax would even have very solid backing from progressives in the Democratic Party. It’s the kind of middle class boost that progressives have always supported.
A Republican-style tax approach that Democratic progressives can support and that can give a huge boost to the overall economy without actually increasing overall tax levels. What is there not to like here?
(Michael Silverstein’s new novel, Murder At Bernstein’s, about a financial news billionaire who wants to get elected Mayor of Philadelphia, is now available on Amazon. Silverstein is a former senior editor with Bloomberg News, and National Public Radio’s Wall Street poet.)